[Bank of Korea Communication Report] "Household Loans Unlikely to Slow Significantly in the Near Term"

Bank of Korea 'Monetary and Credit Policy Report' (September 2021)

[Asia Economy Reporter Kim Eun-byeol] The Bank of Korea forecasts that household debt will continue to increase for the time being amid the soaring housing prices. Considering the recent housing market situation and the heightened profit-seeking tendencies, it is explained that it will be difficult for household loan demand to significantly slow down in the near future.

In the 'Monetary and Credit Policy Report' released on the 9th, the Bank of Korea stated, "Since last year, housing prices have continued to rise sharply, especially in the metropolitan area," noting that prices are significantly detached from fundamental purchasing power such as income. The Bank of Korea's analysis indicates that household loans are increasing as housing prices continue to rise and demand for investment in risky assets persists.

From January to July this year, household loans in the financial sector increased by 79.7 trillion won, maintaining a high growth rate following the second half of last year. Since November last year, the growth rate has exceeded 8% every month, and since April this year, it has recorded a high household loan growth rate of around 10%. Mortgage loans increased due to demand for home purchases and jeonse (long-term lease) funds, while other loans, mainly credit loans, rose significantly. The household debt-to-GDP ratio has also surpassed 100%.

The Bank of Korea stated, "It is judged that financial imbalances continue to accumulate as funds procured through loans combine with households' heightened profit-seeking tendencies and expectations of asset price increases, flowing into the asset market." It added, "Although financial authorities will strengthen efforts to manage the increase in household loans in the future, considering the recent housing market situation and heightened profit-seeking tendencies, it is expected that household loan demand will not significantly slow down for the time being."

It further emphasized, "It is necessary to closely monitor the conditions of the housing and other asset markets, profit-seeking behaviors through borrowing, and the resulting household loan situation in the financial sector going forward."